Friday, November 23, 2007

Dabba Trading

Although I have not written for a while, I have been reading some. And most of the stuff that I read these days an explanation can be found on the internet, most notable them is probably the wikipedia. But I came across this new term which is intriguing and for which wikipedia doesn't have an entry yet.

"Dabba Trading" is a flourishing illegal trading in the backgrounds of the stock market. What approximately happens in such transactions is this: When a client enters a trade for say 100 shares, the broker actually registers a trade for say 1 or 10 shares with the main exchange. Then at the end of the day, the total deliverables are calculated and to hedge the positions derivatives are used. With the help of the latest available software, even the screen of the investor shows that trade for 100 shares have been registered when in reality it is different.

So the question remains why people still flock to such operators. Because these operators allow you to trade on a margin of just 10%. Because larger corporate operators have to yet reach the small towns and villages where such activity is much more. According to a recent estimate, such trades run into thousands of crores of rupees every single day. No wonder the SEBI and others are trying hard to dig these people out. The actual SEBI guideline for banning of such operations were originally issued in 2003. But they are still prevalent in India, mostly in the western parts.

Far as I could find out, a certain Pradeep Kumar Bansal was the first among the dabba traders who had been banned by SEBI on the exchanges. And that was way back in 2003. Ah! the vagaries of greed and fear that drive the fools to the slaughterhouse. As Satyjit Das, of the Traders, Guns & Money fame, would say : any form of derivative instrument is designed to profit just one entity - your broker.